So You Want a Trust, Part 2: Common Situations When Trusts Work Well

Posted by Stephen Williams

As we have noted before, with Indiana's unsupervised estate administration there are many instances when a trust does not offer a benefit to a client. Nevertheless, there remain several areas in which the trust does offer a comparative advantage.

• Revocation of unsupervised administration. If requested by a beneficiary or a creditor, the court will summarily convert an unsupervised estate to a formal, court supervised administration. If that occurs, formalities and costs will increase.

• Multi-state holdings. If real estate or tangible personal property is located in another state, it is typically necessary to have a formal estate administration in that state as well as your state of residence. This duplication is costly and delays settlements - which is avoided if the properties have been transferred to a trust during lifetime.

• Creditors claims. Although this varies from state to state, Indiana law does not shelter property of a living trust from claims of creditors of the owner/beneficiary. Even so, an unsecured creditor of the deceased owner must clear additional hurdles - in a brief window of time - in order to obtain payment from trust property.

• Incapacity. Transfer of properties to the trust during lifetime provides protection against many of the problems encountered if you become incapacitated. Absent some advance arrangements for management of the property, it is necessary to have a guardian appointed to oversee matters if, due to illness or injury, you are personally unable to care for your affairs. That is also a function of the probate court, but is more time consuming, contentious and costly than estate settlement. If property has been previously transferred to the trust, the successor trustee has authority to manage it and guardianship is normally not necessary. You also have the ability to specify, by the terms of the trust document, the manner in which the trustee will manage the property and the way in which funds will be paid for your care and comfort.

• Privacy. The terms of a Will and the appointment of a personal representative are matters of public record, whether an estate is supervised or not. The administration of a trust by a trustee is private, with no substantive, dispositive terms reflected as a matter of public record.

These are common examples of situations when a revocable trust does make sense as an element of a client's estate plan. Each situation is unique, and may present even other circumstances which a trust can be specifically designed to address, based upon thorough and meaningful discussion between the client and the attorney.